Smith v. Van Gorkom

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Holding

The business judgment rule does not apply because the board was not informed before making the decision.

Notes

A procedurally sound deal will have the following elements:

  1. Well informed board from the start of the transaction
  2. Use an investment banker to do the valuation
  3. Director should know about the merger agreement
  4. CEO shouldn't be treated like the king
  5. Rely on outside directors
  6. Just because there is a big premium being paid for the company, doesn't mean that it is fair
  7. Market test should be conducted
  8. The agreement should have a fiduciary out as mandated by DGCL 251(d)